Is the DeepSeek Hype Already Fading?

The šŸ”„H.E.A.T.šŸ”„ Formula : AI Driven Insights to Spark Your Portfolio

Author

Matthew Tuttle
April 25, 2025

In Todayā€™s Issue:

  • Louis Navellier interview

  • Marketā€™s think Trump will capitulate

  • GOOGL and the Mag 7

  • Is the DeepSeek Hype Already Fading?

  • and moreā€¦ā€¦..

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News & Noise

šŸ§  News:

Great conversation with Louis, he seems to be in all the same themes we are talking about. Longer term perspective than we have so made for a great conversationā€¦.

Trump asserts trade talks with China are underway after Beijing denies any ongoing negotiations

The statement followed China's denial of any talks with the U.S. and calls for abolishing 'unilateral' tariff measures for resolving trade issues.

www.cnbc.com/2025/04/24/china-says-no-talks-with-the-us-on-trade-calls-for-canceling-unilateral-tariffs.html

Supply Shortages Loom as U.S. Shipments from China Plummet

www.barrons.com/articles/tariffs-shortages-china-shipping-c159487f?mod=hp_LEDE_C_1

This Stock Could Win as RFK Jr. Moves to Ban Synthetic Dyes

www.barrons.com/articles/sensient-stock-rfk-food-dye-b8294594?mod=hp_SP_C_3_2

āŒ Noise:

A cruel summer looms, but hereā€™s why JPMorgan still expects a higher S&P 500 finish this year

The mood will improve later in 2025 as tariff angst eases, and focus turns to tax cuts and deregulation

www.marketwatch.com/story/a-cruel-summer-looms-but-heres-why-jpmorgan-still-expects-a-higher-s-p-500-finish-this-year-f5ced3a1?mod=home_lead

How Much Have Stocks Rebounded? Are We Still In a Bear Market?

www.wsj.com/livecoverage/trump-tariffs-stock-market-trade-war-04-25-2025/card/how-much-have-stocks-rebounded-are-we-still-in-a-bear-market--RudRZEiRzTbnYHxupaRn?mod=lctimeline_finance

What Wall Street Is Saying

Mike Oā€™Rourke, Jones Tradingā€¦..

The market has embraced the narrative that President Trump is succumbing to market pressure and will pursue the process of closet capitulation. That is the process of cutting any deals possible, declaring victory, and moving on. Today was important because it is the first trading day the S&P 500 surpassed the Reciprocal Reversal peak registered on April 9th . There are some other noteworthy observations regarding this weekā€™s optimism. The S&P 500 is up 3.8% on the week and 7.5% from Mondayā€™s low. Most impressively, the S&P 500 is only down 2.26% in the month of April and 3.28% since the President announced the Liberation Day tariffs. The S&P 500 is 1.6% higher than where it settled Tuesday of last week when Nvidia preannounced its $5.5 billion charge due to the restrictions on exporting H20 AI chips to China.

JP Morganā€¦ā€¦

Facts continue to change ā€” there is indication that the ā€œdetox periodā€ may be over and the latest messaging from the Trump Administration seems to be shifting from tariffs to tax cuts and deregulation. However, the damage to the business cycle still remains unclear

Mohit Kumar, Jefferiesā€¦ā€¦

Trump has dialed down the trade rhetoric and his comments suggest that he wants a trade deal done with the major trading partners. Our view remains that Trump will score easy wins and do deals with India, UK, Japan and S Korea. However, trade deals with the EU and China will be trickier.

GOOGL and the Mag 7

GOOGL was the first Mag 7 name to report earnings last night and it reported a beatā€¦

Yesterday, GOOGL reported 1Q results beating consensus expectations overall (sales surprise: 1.2%; earnings surprise: +39.6%). CapEx of $17.2B came in slightly higher than consensus $16.7B (but below UBSe $17.8B) (link). 33.9% of the S&P 500's market cap has reported so far. Next week will see the largest number of S&P 500 companies reporting (181 names, 41.3% Mcap). 1Q expectations are for revenues to grow 4.1% and EPS by 6.8%.

Hereā€™s the entire Mag 7 scheduleā€¦.

  • META ā€“ 1Q25E: 12.3%; 1Q25A: Wednesday 04/30

  • MSFT ā€“ 1Q25E: 9.6%; 1Q25A: Wednesday 04/30

  • AAPL ā€“ 1Q25E: 5.7%; 1Q25A: Thursday 05/01

  • AMZN ā€“ 1Q25E: 38.6%; 1Q25A: Thursday 05/01

  • NVDA ā€“ 1Q25E: 44.6%; 1Q25A: Wednesday 05/28

Someone asked me on yesterdayā€™s webinar if I though the Mag 7 would eventually lead us out of this correction. Great question, but nuanced a bit. Structurally these stocks are such a big part of the SPY and QQQ that any money that the majority of inflows go to them. Also, if you ask Chat GPT for potential winners across the AI related areas you get one or more of these names. On the other hand, they are most exposed to tariffs. They could lead us out, but you need to have some other stuff just in case. My equity strategy has been to slowly add back exposure, but do it broadly across (no particular order)ā€¦..

  1. Gold and silver miners

  2. Crypto related names

  3. Mid cap defense

  4. AI biotech

  5. AI power generation

  6. China

  7. Industrial metals

  8. TLT

  9. AI infrastructure

And Mag 7. I think having the miners, the crypto, and TLT give a measure of protection here. You also need to have real hedges though.

Yesterday I wrote about low volatility ETFs and how I thought they were a trade, not an investment. This came out of JP Morgan last nightā€¦..

Low Vol Crowding is now at 95%tile and Low Vol Aristocrats have outperformed the market by ~15% in the last two months

Baidu founder highlights ā€˜shrinkingā€™ demand for DeepSeekā€™s text-based AI

Search groupā€™s chief makes rare criticism of Chinaā€™s generative artificial intelligence darling

www.ft.com/content/c462fbd1-1672-4d8f-bd91-c3aa185d2418

This caught my eye this morning as I thought that the DeepSeek announcement was extremely important. Not because what they were saying was true, but because it got investors asking uncomfortable questions about capex and US dominance in AI. Interestingly, Louis Navellier had something to say about this in the podcast (above). He thinks this was market manipulation by the hedge fund that runs DeepSeek. I had GPT analyze this article and itā€™s implicationsā€¦ā€¦

Is the DeepSeek Hype Already Fading?

šŸšØ Baidu Fires a Shot at DeepSeek ā€” What It Means for the AI Race

Baidu founder Robin Li just did something rare in the Chinese AI ecosystem: he publicly criticized DeepSeek, the breakout generative AI darling of early 2025. At Baidu's developer conference in Wuhan, Li stated that "the market for text models is shrinking" and framed DeepSeekā€™s R1 model as slow, hallucination-prone, and narrow in capability.

That may be trueā€”or it may be strategic messaging to position Baiduā€™s new multimodal models (Ernie 4.5 Turbo, X1 Turbo) as superior alternatives.

Either way, the implications are big: DeepSeek may have catalyzed the AI boom in China, but its dominance could already be under threat. And yes, this moment has direct implications for U.S. leadership in AI.

šŸ“‰ Your Concern Is Valid: DeepSeek Disrupted the AI Narrative

Back in January, DeepSeekā€™s R1 shocked the system. It proved that China didnā€™t need Nvidiaā€™s A100s to train a frontier model, and it shook the belief that scale + capex = inevitable AI leadership.

Your thesis was this: if DeepSeek makes the market believe LLM supremacy doesnā€™t require multi-billion-dollar capex (or U.S. chips), it undermines the perceived U.S. AI lead and reduces the moat around companies like OpenAI, Anthropic, and even Nvidia.

Today, Baidu's pivot ā€” and public diss ā€” may validate your concern:

  • If R1-like models are now "just okay" and Baidu's multimodal agents are better, the bar is moving.

  • If China's top companies feel confident building full-stack models with Chinese hardware (Kunlun chips), the West loses the compute leverage advantage.

But here's the kicker: DeepSeek's shakeup was real, and the perception that China can close the gap on AI autonomy remains a geopolitical and commercial threat.

šŸ› Winners & Losers from This Update (Ranked 1ā€“10)

šŸ† Top Winners

Rank

Company

Score

Why It Wins

1

Baidu (9888.HK)

9.5

Reclaims relevance with multimodal, open-source agents + 30,000-chip AI compute cluster. Stocks up 4%.

2

Alibaba (9988.HK)

8.5

Its open-source Quark AI agent benefits as Baidu normalizes the agent model race.

3

SMIC / Huawei Cloud / Kunlun

8.0

Huawei's Kunlun chips gain strategic edge. Baidu confirms 30k chip cluster with no compute bottleneck.

4

Chinese Cloud Players

7.5

Tencent, ByteDance, iFlyTek all gain from rapid multimodal agent commoditization.

5

Samsung (005930.KQ)

7.0

Major Kunlun chip supplier (though U.S. export curbs are a risk). Still critical for logic stack.

āŒ Top Losers

Company

Score

Why It Loses

DeepSeek

8.5

Loses narrative dominance. Criticized as narrow, costly, and hallucination-prone. Risk of being leapfrogged.

Nvidia (NVDA)

7.5

Baiduā€™s ability to run competitive AI on Kunlun shows China can move beyond CUDA + A100.

Anthropic / OpenAI

6.5

If Chinese agents go global and reach feature parity, premium U.S. pricing models lose edge.

Legacy U.S. software

6.0

The global agentic software shift is now moving faster in China than the U.S. (Palantir excluded).

Investors who thought AI was U.S.-only

9.0

The AI Cold War is on. Bet only on U.S. dominance and you risk missing the eastward pivot.

šŸ¤ Strategic Takeaways for H.E.A.T. Readers

1. DeepSeek created the inflection, but Baidu may be accelerating the curve.

  • R1 changed sentiment. Now Baidu, Alibaba, and Tencent are racing to define the new agentic standard.

  • The moat around Western frontier AI looks smaller every day.

2. This will not slow the commoditization of capex-light models.

  • Even if DeepSeek fades, the idea that you donā€™t need a $500M cluster to build a great AI is out there now.

  • That will suppress hype premiums in the U.S. and challenge Nvidiaā€™s pricing power.

3. Expect Chinaā€™s agentic models to go global fast.

  • Open-source + multimodal = global reach, especially in emerging markets.

  • U.S. software firms relying on SaaS subscriptions are vulnerable.

šŸ”‹ Portfolio Implications

šŸ”ŗ Stay Long

  • Palantir (PLTR): U.S. moat in agentic AI + secure data + gov. support

  • SMCI, TSM: Beneficiaries of domestic AI infra buildouts

  • AI-first biotech: RXRX, ABSI, TEM ā€” agents in drug discovery will win

šŸ”½ Be Cautious

  • NVDA: Still dominant but market narrative is weakening

  • OpenAI/Anthropic-adjacent: API commoditization risk from open-source agents

  • Legacy SaaS: Especially those with no agentic roadmap (SAP, ORCL, CRM-lite clones)

Bottom line: This is not the end of DeepSeek. Itā€™s the start of a deeper realignment. China is learning fast, open-sourcing faster, and out-executing on agents and hardware.

Get ready for an AI landscape thatā€™s more fragmented, more competitive, and no longer as dollar-dominated.

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